Spreadsheet Hell

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Call it the “innovation gap,” a yawning space between two parallel universes. In one, companies operate more effectively than ever before, powered by a rash of new technologies that tackle every aspect of financial management, from the mundane (if complex) processing of invoices and payments right up to strategic planning and long-term forecasting. Software companies promote an endless array of appealing new products that promise to save CFOs time and money, put companies in compliance with new financial rules, and turn reams of data into actionable intelligence. A stream of conferences, roundtables, and Webcasts explore the latest innovations and profile the forward-thinking companies that have deployed them, with the obligatory touting of astounding returns on investment.

In the other universe, new technologies don’t fare as well. This universe could be labeled “reality.” In a recent survey of 168 finance executives, CFO IT asked about the state of IT as used by corporate finance departments. Out of a list of 14 finance-specific technologies, we found that only 2 are widely used: spreadsheets and basic budgeting and planning systems (see “What’s Hot, and Not,” at the end of this article). The others — from portals and dashboards to treasury and tax software — have thus far largely been ignored. “Spreadsheet hell,” a term often invoked by software companies — and, occasionally, by customers — is not, as of yet, driving many CFOs to make substantial investments in newer forms of IT. Nor have the demands of regulations from the Sarbanes-Oxley Act of 2002, even though many of the more-complex rules focus on internal controls, an aspect of corporate operations often inextricably tied to technology.

Slow Motion

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Why the gulf between expectations and reality? It’s not that finance departments are uneasy about deploying new technologies — the great majority of survey respondents expressed satisfaction with their department’s ability to absorb new IT (see “Finance IT: The Big Picture,” at the end of this article). Instead, the two main factors appear to be the slump in overall IT spending and the lingering hangover from the Y2K-inspired wave of ERP implementations. According to our survey, cost and integration problems remain the top barriers to implementing new finance technologies. “Although there is renewed interest, we still haven’t seen a big pickup in finance IT spending,” says John Van Decker, a vice president at Meta Group Inc.

Ironically, Sarbanes-Oxley may be slowing the pace of new technology adoption further. It’s not that IT won’t be important for companies’ compliance efforts; on the contrary, CFOs say that having a well-integrated system that accurately and transparently reports results is a definite advantage when executives have to sign their name to financial statements. Instead, the problem is that compliance requires such a major effort that many CFOs don’t want the disruption of a large systems implementation.

“While we’re in the middle of Sarbanes-Oxley, we have an embargo on new systems,” says J.T. Fisher, CFO of Delta Connection, a unit of Delta Air Lines in Atlanta. “You don’t want to have internal-control attestations driven off of audits and process reviews that are linked to systems that are unstable. Once the process is bolted down, we can start adding new IT.” Our survey suggests that many finance executives are taking a similarly cautious approach. Of the public companies that responded, only 10 percent are spending much more on technology as a result of Sarbanes-Oxley, 50 percent are spending somewhat more, and the rest see no change.

But the innovation gap our survey uncovered does not stem only from caution in the face of new business requirements. Broadly speaking, finance executives appear to be largely content with the technologies they have today: 72 percent say they have most or everything they need in the way of finance IT. And the much-derided spreadsheet, so often posited as the dinosaur that newer technologies will ultimately make extinct, is not heading for the tar pits anytime soon. Every single company we surveyed uses spreadsheets today, and a mere 9 percent think they will decline in importance in the coming years (see “Spreadsheet Purgatory?” at the end of this article).

Companies have also learned, after much expense and pain, that technology is only part of the solution, and sometimes not a particularly big part. Technology really works, says Fisher, when it “helps you slough off old ways of doing things, when it helps you discover and adapt better processes. That’s when you get great efficiencies. But the latest technologies, in and of themselves, don’t make you more productive.”

Change Is Coming

This lull in technology adoption won’t last forever, though. According to the survey, companies do plan to start adding new finance IT. Eighty-two percent say that within five years their finance departments will rely on a mix of current and new technologies, and 13 percent say they will rely primarily on new technologies.

One reason is that spreadsheets — useful and beloved though they are — will soon force a change for many companies. While they can satisfy many needs in small, stable organizations, they can become a major burden for larger companies. Indeed, while only 33 percent of respondents with revenue under $100 million say that “spreadsheet hell” is a fair description of what goes on in their departments, that figure jumps to 59 percent for larger companies.

“When you are an organization with less than $100 million in revenues, you can almost run your whole accounting department using spreadsheets,” says Lee Geishecker, a vice president and research area lead at Gartner. “But as soon as you run into business complexity such as industry-specific requirements, complex incentive programs on your sales side, or multinational environments, you have to move away from spreadsheets as the engine for your budgeting.” As companies start growing again, there will be pressure to fix the spreadsheet problem.

Such pressure was strong at Mentor Graphics, a $675 million provider of engineering software. A few years ago, the company’s annual planning process required rolling up data from 1,200 Excel spreadsheets — one for each cost center. “When you get that many spreadsheets, it never quite ties together,” says Jan-Willem Beldman, the company’s enterprise data architect. “On average, it was a six-to-eight-week process each year just to get that worked out.”

Today the company uses a Hyperion Essbase system with a Web-based tool that pulls all of the data into one place, automates the approval process, and allows planners to run scenarios more easily than they could in Excel. “We’re now doing the whole planning process in five months, down from what was an eight-month ordeal,” says Beldman.

Another force for change is the ongoing drive to reduce the cost of finance. CEOs continue to demand that such cost centers as finance be leaner, while making a greater strategic contribution. Because of its ability to automate routine tasks, technology will be vital to this effort.

Consider Delta’s experience. When the airline industry suffered a sharp decline in demand following September 11, 2001, the company had to make deep cuts in all areas. Finance was able to use Delta’s new SAP system to do its part. By redesigning and automating finance processes as part of the implementation, the department was able to reduce staffing by between 15 percent and 20 percent, and dedicate more employees to providing decision support to the business. “We’ve greatly reduced the amount of finance staff time spent on transaction processing,” says Fisher. “Now we spend much more time on business matters.” Delta had a curious advantage, Fisher says, in that its hodgepodge of systems were so cumbersome that when the company consolidated on a single ERP system from SAP in 2001, “we didn’t have to worry about people being reluctant to learn a new system — they said, ‘I don’t care what the new system is, I’ll embrace it.’ “

More important, Fisher says that a single ERP system offered a way out of spreadsheet hell because it provides a uniform source of data that all spreadsheet analyses rely on. “In the past, you would sit in a meeting and several people would offer up business models, and you’d have to spend time sorting out what everyone’s assumptions were based on,” he says. “You couldn’t even get to a discussion of whether the business case was good or bad because you were bogged down trying to understand what one spreadsheet was saying versus another. That’s spreadsheet hell.”

ERP, of course, is not new, although the major vendors constantly add new modules and capabilities to it. Among the more purely new technologies of most interest to CFOs, five rise to the top: corporate (or business) performance management, a.k.a. CPM/BPM; E-procurement; portals; E-payment/E-billing software or services; and dashboards.

Teach Them to Fish

What these technologies have in common, aside from the inevitable promises that they will provide near-instantaneous payback, is that they help finance departments do less paper-shuffling and more analysis. E-procurement and E-payment/E-billing (technologies sometimes collectively known as financial supply-chain software) help free finance from much of its routine accounting work. CPM/BPM, portals, and dashboards are tools that help finance satisfy the business’s demand for better visibility into the drivers of growth or the sources of trouble.

Frank Figueroa, CFO of Sandia National Laboratories, which is owned by the U.S. Department of Energy but operated by Sandia Corp., a subsidiary of Lockheed Martin, is interested in visibility, on several levels. “As much as I’d like to drive down the cost of IT,” he says, “if that spending helps us achieve our objectives, then that’s fine. I would just like better insight into which IT projects provide the most contribution to our strategic objectives.”

Despite those reservations, he is upbeat about the promise of CPM products. The company is using an Oracle ERP system and portals (essentially Web pages customized to provide access to data, software applications, and other sources of information relevant to a given constituency) as a way of pushing data out to business managers and customers. Now Figueroa is looking for tools to help analyze the data. “We’re doing a good job of reducing the cost per transaction,” he says. “The drive now is to do a better job of predicting revenue streams and taking actions to make sure we’re achieving our strategic goals.” One of those goals, he says, is to gain a better understanding of the link between IT spending and quantifiable performance improvements.

That need isn’t lost on makers of ERP systems (such as Oracle) many of which have come out with new systems to compete with vendors that specialize in CPM and other aspects of finance IT. In particular, Oracle sees more adoption of Web-based applications for such areas as bill presentment, receivables management, and credit management.

For his part, Fisher of Delta Connection says that once Sarbanes-Oxley compliance is well in hand, he hopes to explore technology that will streamline the company’s approach to payroll and employee-records management. “This is the biggest, most complex cobweb of systems for us,” he says.

That one-thing-at-a-time approach would seem at odds with the transformative visions that many software vendors are peddling. But what can look slow and steady in the near term can in fact be fairly revolutionary: is there a finance department in existence that doesn’t rely on the Internet as an all-purpose technological backbone? Could one have said the same five years ago? Even in the near term, the innovation gap seems far more likely to shrink than to grow. The number of companies that will adopt newer forms of finance IT will be so large, why, you’d need a spreadsheet to track them all.

Don Durfee is research editor of CFO.

After the Cost-Cutting, More Cuts

While many CFOs have an IT wish list and seem interested in new technologies, a recent survey from Booz Allen Hamilton suggests that purse strings will remain securely fastened. Asked about their top overall priorities, fully 85 percent of the 156 CFOs surveyed cited cost-cutting for general and administrative services — a.k.a. overhead — including IT, human resources, and core accounting and finance functions. In fact, despite the prolonged economic slump and the substantial cost-cutting it has already entailed, only 3 percent said they’ve cut overhead costs as much as possible.

While survey respondents pointed to a number of different strategies for making further cuts, there was little evidence of a slash-and-burn approach. With the easy cuts having been made, companies now believe they’ll need to combine cuts to nonessential services with other strategies, including standardization, restructuring, and altered relationships with — and expectations of — the business units that consume many of those services.

The survey turned up plenty of evidence that IT strategy will play a key role in such plans — and maybe a number of roles. For one, Booz Allen found that success in cutting overhead costs can hinge in large part on mastering the complexity of IT. Companies that said “managing a patchwork of different systems” is their top IT challenge were almost unanimous in labeling themselves underperformers in overhead reduction, while fewer than half of the self-described leaders in cost-cutting said managing a hodgepodge of systems is a top IT concern.

In some cases, an investment in IT may help business units become more self-sufficient. One of the appeals of business intelligence and CPM technology is that they can enable business managers to do their own analyses based on a common set of data. If the technology lives up to its promise, business units can satisfy some of their own requests, allowing finance to do more with less. “A lot of what finance does today are things that people would do themselves if they had the tools,” says John Van Decker, a vice president at Meta Group Inc.

That’s been a perennial complaint, of course, but with tools improving and the pressure on companies to operate more efficiently in no way abating, this could be a classic case of spend a dime to make a dollar. —D.D.

What’s Hot, and Not

Where does your company stand on the following technologies?

Use now

Planto use

No plans, but interested

No interest

Spreadsheets

100%

—

—

—

Basic budgeting,planning, forecasting

66%

17%

13%

4%

ERP (finance modules)

34%

14%

26%

27%

E-payments, E-billing

34%

18%

34%

15%

Treasury systems

29%

8%

29%

34%

Tax systems

25%

10%

27%

38%

E-procurement

19%

19%

37%

25%

Portals (finance-oriented)

13%

16%

37%

34%

Dashboards

13%

19%

31%

37%

Compliance software

11%

15%

35%

40%

Risk-management software

10%

5%

45%

40%

Advanced BI, CPM, BPM

8%

20%

50%

22%

Enterprise spend management

6%

6%

36%

53%

Price-optimization software

6%

7%

31%

57%

Note: Percentage may not total 100, due to rounding.

Finance IT: The Big Picture

How would you characterize the state of finance IT at your company today?

We have everything we need

6%

We have most of what we need

66%

We are missing critical components/capabilities

24%

Our systems are wholly inadequate

4%

How satisfied are you with your finance department’s ability to absorb new technologies?

Very satisfied

25%

Somewhat satisfied

48%

Neutral

19%

Somewhat dissatisfied

7%

Very dissatisfied

1%

When it comes to implementing new technologies within finance, which of these pose a barrier?(Multiple responses permitted.)

Integration with existing systems

74%

Cost

71%

Disruption to existing process

42%

Training

39%

Employee reluctance to use new technology

26%

Other

3%

As an IT customer, how satisfied are you with:

Very satisfied

Somewhat satisfied

Neutral

Somewhat dissatisfied

Very dissatisfied

Internal IT department

25%

42%

14%

16%

4%

Vendors (products)

8%

42%

35%

14%

1%

Vendors (service)

7%

38%

40%

13%

2%

Outsource firms (finance)

3%

18%

68%

10%

1%

Consultants/integrators

4%

26%

51%

15%

4%

Spreadsheet Purgatory?

Software vendors often say that companies are trapped in “spreadsheet hell,” reliant on outdated technology that can’t meet today’s business needs. How well does spreadsheet hell describe your organization’s reliance on spreadsheets?